For entrepreneurs, there’s a lot riding on the outcome of their negotiations with potential investors. The biggest trade off being between the funds they seek from the investors and the control that they’re willing to give away in return. Here’s what we found out by churning the data of India’s 88 Unicorns:
Seed Stage – At the end of the seed round of funding, the founders were collectively left with a median ownership stake of 73%. However, founders of MamaEarth, DealShare and boAt retained over 90% stakes in seed stage.
Series A – At the end of Series A round, founders retained a median ownership stake of 52%. However, several Unicorns like OfBusiness, Upstox and Elastic Run had founders’ share greater than 70% after Series A. Whereas the founders share in Xpressbees and PineLabs were less than 20%. Founders of boAt retained about 90% of their stakes in Series A round.
Series B – At the end of Series B round, founders retained a median ownership stake of 35%, diluting 17% from the last round. However, in some Unicorns like GlobalBees, Acko and Slice, founders’ share was lower than 12%.
Series C - At the end of Series C round founders were left with a median ownership stake of 28%. The founders of only 2 Unicorns - Pristyn Care and Upstox continued to own a majority stake (i.e. >50%) at the end of Series C.
So now you have a robust benchmark to beat. If you’re diluting less than 27% in the seed stage, for example, you know you’re better than an average Unicorn. Now, on that note, let’s revise this lesson from the book ‘Venture Deals’ by Brad Feld and Jason Mendelson –
A few compromises are just a part of the game but be sure you know exactly what you want when it comes to money and influence. Moreover, set your own limits and know when to walk away from the negotiation table.
This article is a part of the January'23 edition of our Startup Newsletter. Here's the complete publication: